The euro will not collapse as a result of the sovereign debt crisis plaguing the euro zone and is more likely to rise than fall in the coming months, HSBC currency strategists said in a new report.
The report comes as theeuro hit a 16-month low against the dollar and sterlingas the euro zone crisis drags on. But HSBC is confident that a resolution will be found.
“Having established EMU (European Monetary Union), we should expect everything to be done to maintain it, despite the depths of the problems that Europe faces,” the report said.
“It seems extremely unlikely that there will be a disintegration of the euro, even if the sovereign debt crisis gets worse.” In the report, HSBC also said that it did not expect any members of the currency union to leave the euro The currency was holding up well in the face of an unprecedented crisis for two main reasons, according to the report.
Firstly, it is impossible to buy or sell a “Greek euro” or a “German euro”, meaning the position of the region as a whole matters to currency traders, not its component parts.
That puts the euro in a strong position, according to the HSBC’s currency strategists.
Secondly, a resolution to the crisis is in the interest of all euro zone economies, HSBC said, and the consequences of failure are so dire that a solution will very likely be found.
“Many have been looking for the euro to fall heavily in response to the crisis.
However, we think that the euro will more likely move higher again as there are moves to address the fiscal issues in Europe and as the market focuses again on the problems of public finances in the U.S., " HSBC said.
“In our view, a gradual move towards a resolution is the most likely outcome, and as the news flow becomes less negative then the euro is more likely to rise than to fall in coming months,” the report said.
Other strategists are less confident, and expect a further drop for the single currency.